Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

Reich chooses 1979 but a look at the chart shows that the break in wages and compensation actually occurred earlier. If you read Hacker and Pierson you would know that already and you would know why (the tweet version is that sometime in the sixties business started organizing together to lobby congress more effectively to counter labor’s power and their first successes came early in the Carter administration. Labor’s failure to reverse the Taft-Hartley Act gave business an insurmountable edge.)

Its the tax code & deregulated Wall Street stupid…Raise taxes on the wealthy & corporations, end the loop holes & we must also re-institute the Glass Steagall act. Until that is accomplished any other attempts at a fix the broken system will fail. There is way too much wealth concentrated in too few hands…Robert Reich’s NY Times piece was A+ in explaining the history of how we got to where we are…a great read.

Funny, I remember the Reagan years as much more than Reich posts here. We rediscovered our national pride and character which went a long way towards the demise of 20th century communism and the resulting economic liberation of tens of millions of people – many of whom are now our competitors. And including the CARTER YEARS as prosperity??? What a hoot.

Robert Reich is well-educated, but in the final analysis a diminutive player (pun intended) and political hack who carries the water exclusively for the progressive-regressive wing of the Democratic Party.

Practically anything he utters or plasters on print should be taken with a sigh and a shrug. His stats are abitrary and capricious on this post.

The “hollowing” of America first meant manufacturing, now it means income. Most people to not know that less than .5% (not 5% but .5%) of US firms create over 50% of private payroll (source: SBA). As wonderful as start-ups can be, they cannot grow fast enough to fill the void created by large companies exporting work (and taxes).

Given the increasing globalization of revenue, and its unpredictability why doesn’t a solid US middle class make sense to leading CEOs in terms of both stability and community?

The oligarchy (who are well represented in government and the corporate world ) are doing their best to maintain their gains. Voter suppression efforts are underway in each state with a Republican governor. They know that if the lower classes start voting en masse, and the middle class stops voting against their own interests that their days are numbered.

Deliberate income inequality is the hallmark of all failed nations. It would not take much to tip the US into a full blown depression, another terrorist attack like 9/11, or huge national disaster would be enough to send us into hell.

I do not have faith that the current administration and congress will address income inequality in any meaningful way and Obama’s job speech will be just more jawboning without any real intent to change the status quo. (disclaimer: I voted for Obama)

You know, you could also overlay that chart of a declining middle class with a chart of increasing female participation in the labor force.

If women went home and got barefoot and pregnant, wouldn’t we all be a lot better off? After all:

1. If it weren’t for immigrants, our society would actually be suffering from the same problems created by negative population growth as Japan. More women at home with nothing to do = more babies = economic growth.

2. If half of the workforce (women) went back to the suburban kitchen, then the half that was left (men) would be in a much stronger position to demand a living wage and fair treatment.

I agree with machinehead. He makes it look like the Reagan revolution was the culprit when the real catalyst was the closing of the gold window, the moving to total fiat US currency and the restraints taken off central bank money printing

Once the central bank had the freedom to slam the brakes on the economy via the interest rate mechanism every time wages started to rise, they had a way of effectively slamming the working class into the pavement the instant prosperity got a little too close

“Reich (who served in a Democratic administration) conveniently cuts off his age of prosperity in 1979, so that most of Jimmy Carter’s term is included. But as his own graph clearly shows, average hourly wages peaked in 1972-1973. Inflation was high and rising for the rest of decade, stalling real wage growth.”

But that was as a result of external oil shocks, not internal public policy, which subsequent economic ramifications were. Not to mention there were more jobs created during Carters term than either of Reagans terms or any of the Bushies terms.

One of the major points that Hacker and Pierson make is that it’s not about who is President or even which party controls congress – it’s about being funded and organized and then making congress act in your favor or at least soften the blow when you can’t win outright. They carefully look at the ’70s in which superior organization by labor forced a right-wing Republican President (Nixon) to the left and the rapid turnaround when business interests got themselves successfully organized and forced a left-wing Democratic President (Carter) to the right. Labor has been retreating ever since (To be clear – I’m talking economic issues not cultural issues which is where the left retreated to as their economic clout slowly diminished).

“You know, you could also overlay that chart of a declining middle class with a chart of increasing female participation in the labor force. If women went home and got barefoot and pregnant, wouldn’t we all be a lot better off? After all …. 2. If half of the workforce (women) went back to the suburban kitchen, then the half that was left (men) would be in a much stronger position to demand a living wage and fair treatment.”

I assume you have your tongue quite firmly planted in your cheek, but to that point, it was the decline in the Standard of Living of those men in the first place that led to women having to enter the workforce in an effort to keep family incomes up:

* The real average weekly earnings of the overwhelming majority of working Americans went backwards by about 20% during the 12 years of Reagan/Bush.

* Prior to Reagan taking office, the majority of married women worked inside the home, by the end of his terms, the majority of married women worked outside the home.

>> so that most of Jimmy Carter’s term is included.
>> But as his own graph clearly shows, average hourly wages peaked in 1972-1973.

But productivity growth flattened at the same time. And then everything started increasing again until 1979-80.

What changed — after Carter, i.e., with Reagan — is the breakdown in the relationship between increasing (a) productivity growth and (b) wages.

…

We initially paid for the Vietnam War with “gold-backed” debt. Taking us off that standard subjected us to twin, complementary forces of currency devaluation and increased financing costs. Who got left with the bill? Ford/Carter.

Just like today. George W. Bush and self-proclaimed conservatives left someone else with the bill. (Only Obama does not seem to be picking it up.)

With oligarchs and corporations exerting ever greater control, political party and presidency have not been particularly relevant for the past few decades, but it is certainly true that moving the charts back further in time would make the story of an eroding middle class even more compelling.

Elizabeth Warren’s research clearly presents the average post-war American middle class household as managing comfortably and also managing to increase savings on the income of a single-wage earner up through the mid-seventies whereas the average middle class household of the new millennium required two incomes and still went deeper into debt; e.g., http://youtu.be/8GHg3GAeQ1Y

Neo-conservatism, the dominance of supply-side economics and pro-corporate/anti-worker policy bias either contributed to, or at least did not prevent, the trends depicted in Reich’s charts but in the end these ‘philosophies’ merely supplied cover for what elites wanted to do anyway (or what plutocrats paid them to want to do). As John Kenneth Galbraith commented in his 1984 commencement address to American University, “Increasingly in recent times we have come first to identify the remedy that is most agreeable, most convenient, most in accord with major pecuniary or political interest, the one that reflects our available faculty for action; then we move from the remedy so available or desired back to a cause to which that remedy is relevant.”

Far too much policy noise has been directed at desired remedies such as deficit reduction but the direct causes for the trends in Reich’s charts are known and public debt is not the relevant statistic, private debt is: American families have been trying to maintain standard of living in the face of a growing delta between non-discretionary expenses and household income as well as an increasing level of household risk. Americans didn’t suddenly become lazy or profligate and those non-discretionary expenses and those risks are known.

But, with the exception of the virtually powerless Progressive Caucus, none of what is known is central to the policy debates currently going on in either political party. Expect no change until that changes.

Simply put: The measure of the success of a civilization is the health of its middle class. Who, exactly, will provide a “consumer economy” with its growth when there is no consumer? No growth, only wealth to the already wealthy……..its OK if you’re OK with that, but I’m not.

On the first chart, productivity begins to separate from wages and compensation at an inflection point around 1973-4 (Arab oil embargo). You can whine all you want about unions, business tactics, Bush and Reagan, but the reality is there are grunt jobs for those with an eight grade education (about three-quarters of Americans) and there are professional jobs for the more intelligent, better educated, more MOBILE, more career pliable Americans. Well-paying farm jobs or jobs making buggy whips (I mean factory and steel mill jobs 10 miles from your house) are not coming back. We will soon have a society like Mexico (and most of the world) where all the money and power are concentrated in the top 1-5%, and a peon class of everyone else. If you are one of the lucky five percent, you and your friends better start deciding how to remove yourself from the other 95% (gated communities with guards, armed chauffers, etc.). I forsee an unhappy time had by all in the not too distant future.

Blame technology, not Reagan. Prior to the computer and communications revolution that began in the 1970′s, top-level workers were simply not that much more productive than lower-level workers, and there was less opportunity for globalization. The force of globalization is unstoppable. Those who can take advantage of the much larger markets by having skills that can be multiplied indefinitely via computers (authors, investment managers, business executives, designers) will earn fabulous sums. Everyone else will be pushed down into poverty. There aren’t enough resources for living standards of the developing countries to be raised to the developed world level, so the livings standards of the latter must fall. The world is indeed becoming flat, hot and crowded.

There will be pressure to reverse the above trend by taxing the rich, but what will actually happen is the rich will play a divide and conquer game with the lower echelons. How this works out is anyone’s guess. Perhaps welfare (especially social security and medicare) and taxes on the middle class will both be cut, as the tea party wants. More likely is that welfare will be mostly retained, but taxes on the middle class will be raised via a VAT, thus driving down middle class living standards still further. More than likely, this VAT will be imposed under a Republican administration, cheered on by the tea party. What won’t happen is much higher taxes on the truly wealthy. maybe rates will be raised, but this will be accompanied by all sorts of loopholes that only apply to the truly wealthy (those with incomes over $10 million a year). People with incomes that high can credibly threaten to drive politicians in 50:50 districts out of office if they don’t do what the rich want, and that is sufficient leverage to get Congress to vote for those loopholes. Whereas schmucks like “How the Common Man Sees It”, who I’m sure has an income much less than $10 million a year, will not be protected.

As compared to about 12.5%, or about half that concentration, in Europe. That difference is a result of more progressive rates of Income Tax and higher Capital Gains taxes.

I fear that unless something is done Marx’s predictionw will indeed come true and we will see pitchforks in the streets. A bit like in London. But with Guns.

I know why the average Republican Pol votes for this stuff (Lobbyists and their bags of treasure) but it still beats me why the average Republican voter supports this excess at the very top and for large Corporations?

I seem to look at the world view. More world population entering the modern/manufacturing arena so America has more worker/wage competition. Wasn’t it mid 70′s that Japan became a major competitor to US Auto? A second world country delivering cars at a lower cost do to lower wages and higher efficiency. As the second and third world developed (and still is) American’s continued to compete with lower world wages, and jobs started going overseas. That resulted in the same number of men (then compounded by females beginning to enter into the American market) for fewer American jobs, and the downward wage pressure/spiral started, ..and the rest is history…..and now will continue until everyone worldwide is making the same wages (unless our military intervenes at some point)

I was just having a discussion in the park last night with some older (than me) gentlemen whilst walking my dog. I have had some of the most enlightening conversations of my life while taking time out of my day to stop and engage in the forgotton (and even socially forbidden) ritual of “talking to strangers.” This was one of those.

We got to talking about dog training and music and somehow segued into the general clusterfuck that is the current economy. One of them expressed what I considered an astute and concise summation of what he perceived to be the root cause of the SNAFU. The way he put it was so: “People have gotten confused as to the understanding of ‘wealth’ and ‘money’.”

In other words:

Money is being percieved as the resource itself, rather than a representation of something tangible which returns something of value just by being what it is.

Wealth is actual – a resource, or an assett with inherent value, be it soil which can produce crops and sustain livestock, or to grow trees and or mine materials which can be used for building. Something which either provides or generates something else of value simply because it is what it is – water, food (=potential energy!), land, or the fruits of labor that a workforce can generate if they have adequate amounts of those resources.

Money is the paper representation of what value those assetts might have for the purposes of exchange. While the idea the “money makes money” is pretty familiar to us, Money cannot actually produce anything at all. In reality, money that just makes more money is pretty useless if that is all you have. (Unless perhaps, you are stranded with other members of your soccer team in the mountains and have to eat each other after a plane crash – then the paper can be used as kindling for a fire to stave off hypothermia. However, this not something for which there is a universally high demand.)

The damage to the economic systems comes about due to the phenomenon of Wall Street and investing for PROFIT, all based on speculation and hedging of bets as to what that value of future monies will be. This has essentially moved the focus of trading the resources (the actual WEALTH) that money is meant to represent and money itself has become erroneously looked upon as a resource with inherent value. Greed enters the issue as well, made more complicated by the fact that in practice, the value of money is really only a figment of our imagination. Clearly this value is NOT inherent, which is why so many polititicians are having difficulty solving the problem

The value of money is so intangible that the mere perception of the change in value essentially results in the self-fullfilling prophecy, and results in actual change in value! The market is only profitable when volatile. Money is made and lost in direct proportion to the amount of change in value, either between currencies or times of exchange. This allows fortunes of cash to be made and lost without any regard to the resources it is supposed to represent, nor to the consequences of what toll will be taken on the actual wealth of resource in the aftermath. Hence, the ridiculous inflation of costs and interests

The “rich” (in money) suffer less than the poor because when all is said and done, it is the PEOPLE that are the real resource which backs the economy (their labor to produce things and their return of the fruits of that labor into a system which has a demand for that labor), and that division of people wealth is constant no matter what numbers are in the bank accounts that disproportionately assign value accordingly. We have lost sight of this, and the result is this imbalance that will not normalize without a complete overhaul of our perception of the means of exchange. But the establishment is unlikely to relinquish the current understanding without some motivation.

This is precisely the reason “the love of money” is truly as dangerous as the saying goes.

clearly we need to fill that productivity to wage gap by…..being less productive. Since wages aren’t going higher anytime soon with so much desperate labor out there…Sad state of affairs…Thanx baby boomers.

According to the chart, wages and compensation continued to rise during the Great Regression, just more slowly. Does that seem correct? I would like to get some guidance on this. Because I believe people are making less than they did before.

B) Also, I don’t know why he used “average hourly wages”, as it can be misleading. If you and Warren Buffet are in a room, the average net worth for everyone in the room is about $25 billion, which obviously does not reflect reality. “Average” works for ‘Weekly Earnings’ because the Labor Department describes it as not including supervisory or salaried income.

C) The last time I checked, real average weekly earnings went backwards over the last decade.

I would like to see how the global productivity vs pay looks. While it is tough on the middle class here, think about what it is offering the world. Large companies are giving such amazing opportunities to a developing middle class globally. Capitalism (aided by technology) is doing what empires never could successfully and once economies are strengthened I suspect that the worlds middle class will be so much more robust in the long run. That said, it is likely that empires could not successfully expand because of this same problem.

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Ritholtz has been observing capital markets with a critical eye for 20 years. With a background in math & sciences and a law school degree, he is not your typical Wall St. persona. He left Law for Finance, working as a trader, researcher and strategist before graduating to asset managementRead More...

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